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CP Rail names former rival Hunter Harrison as its new CEO

Hunter Harrison is heading to Calgary to become chief executive officer at Canadian Pacific Railway — an appointment that was anticipated after Bill Ackman and his hedge fund Pershing Square Capital Management decisively won a bitter proxy fight last month.

Hunter Harrison, former CEO of CN Rail, smiles as he speaks to a colleague prior to a Pershing Square Capital Management town hall meeting for Canadian Pacific Railway shareholders meeting in Toronto on Monday, Feb. 6, 2012. (Pawel Dwulit / THE CANADIAN PRESS)

By Vanessa LuBusiness Reporter

Fri., June 29, 2012

After saying he would like another notch in his belt, Hunter Harrison will get his chance after being named president and chief executive officer of Canadian Pacific Railway.

The appointment of the retired CN executive, who also turned around Illinois Central Railway, was long anticipated after Bill Ackman and his hedge fund Pershing Square Capital Management campaigned to put the 67-year-old Harrison at the helm.

Pershing won a decisive victory in its proxy fight that saw Fred Green step down as CP Rail’s top executive, mere hours before the May 17 annual meeting when it became clear shareholders were siding with Ackman.

Along with Green, five other directors including chair John Cleghorn decided not to stand for reelection.

Harrison’s hiring comes just days after former Suncor chief Rick George quit as a director, following a similar departure by retired Cargill vice-chairman David Raisbeck earlier this month.

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That hinted at some disagreement on the board, with the original CP directors, who had steadfastly backed Green, now numbering seven. With Harrison on the board, Pershing has eight directors.

In a letter to employees Friday, Harrison called it a privilege to be chosen to lead one of North America’s truly iconic companies.

“I know you, your colleagues, and the company have been through unsettling times lately,” he writes. “Let me assure you, I recognize great potential lies within CP. I look forward to working with you toward our shared goal of helping CP realize its fullest potential.”

He added that he had no magic formula, but said it will come down to a mix of the railway’s strengths and employees working hard to execute a plan for service excellence.

Harrison, who has a four-year contract, said in a television interview he expected to have a plan in place within 120 days.

CN said in a statement it does not intend to block Harrison’s appointment, though it expressed concern that “it will be difficult, if not impossible, for Mr. Harrison to perform his new duties for CP without drawing upon his broad knowledge of CN’s confidential information.”

“CN intends to monitor events, and if it appears that Mr. Harrison is using confidential CN information, CN might seek injunctive relief at that time,” it said.

In February, just after Pershing held a town hall meeting to introduce Harrison to investors, CN Rail quickly moved to file a lawsuit in Illinois to stop $40 million in pension and other payments owed to Harrison.

The lawsuit continues in the U.S., and “the company reserves the right to exercise any and all legal options available to it in connection with this action,” CN said.

In May, CN president and CEO Claude Mongeau dismissed any concerns that he might have to compete against Harrison.

“A company is like sports. You don’t get to pick who is on the other team,” he said. “Solid competition is good for sport ... we will compete hard with whoever is the leader there.”

Mongeau also dismissed speculation that Harrison might try to poach current CN executives, perhaps those who might want to become CEO at CP.

“We have a good story. We have a winning team. I think people are loving it at CN,” he said.

Harrison arrives at a difficult time — after the company just weathered a nine-day strike by 4,800 members of the Teamsters Canada Rail Conference, who were legislated back to work on May 31.

Pensions were at the heart of the dispute, and an arbitrator will be appointed to impose a contract. Like many Canadian companies, CP Rail faces a solvency deficit — and in the past three years made nearly $1.9 billion in contributions. Its 16,000 employees are outnumbered by its retirees, who number almost 18,000.

But the biggest challenge that Harrison faces is meeting high expectations and delivering better returns to shareholders.

Pershing and Harrison had argued that CP’s operating ratio — which is a measure of efficiency in the railroad industry — could come down to 65 per cent within four years.

CP’s operating ratio in the first quarter of 2012 was 80.1. By contrast, CN’s was 66.2.

At February’s town hall, Harrison emphasized he can fix the company through precise scheduling, controlling costs and a war on bureaucracy.

“It’s a special opportunity. It’s what I do, so I would like to put one more notch in my belt, so they can say it was three turnarounds,” he said.

“The problem is execution,” Harrison said in his thick Tennessee drawl, disputing “excuses” that CP Rail faces steep inclines, more competition on its routes, and more unpredictable weather in the West.

“The Rockies have always been there,” he said. “It snows everywhere. It snows on CN and CP.”

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